Value investing is in the doldrums, but billionaire fund manager David Einhorn says that eventually things will turn around. This according to a recent CNBC interview.
Einhorn argues that the last time value saw a turnaround– after the dot-com bubble in 1999 when, he said, “everyone was talking about eyeballs as the new paradigm for investing”—it ended badly for momentum investors. He believes that value investing will rebound: “When it reverts,” he adds, “it tends to revert pretty sharply.”
Pointing out that the companies owned by his hedge fund Greenlight Capital (which focuses on value strategies) are generally profitable, Einhorn expresses optimism concerning tax reform, saying that it has a better chance than healthcare reform of getting pushed through. But in a recent letter to clients, he expressed uncertainty regarding when such a turnaround might occur.
“The knee-jerk instinct,” he wrote, “is to respond that when a proven strategy is so exceedingly out of favor that its viability is questioned, the cycle must be about to turn around. Unfortunately, we lack such clarity.” Instead, Einhorn adopts a wait-and-see approach.